Friday, November 19, 2010

The chair of President Obama's "Catfood Commission" now claims that inaction on containing the federal deficit would be a job killer of massive proportions". So I'm sitting here, wondering: How?

First of all, the federal deficit last year was approximately 6.5% of U.S. GDP. In the worst case, the deficit can be financed by simply printing money -- which would give us a net inflation rate of 6.5% per year. Which is not good, but hardly Weimar Republic style hyperinflation either, we've had 6.5% inflation multiple times within my lifetime and it seemed to have essentially no effect on jobs (much to the disgruntlement of Keynesians, who thought that inflation would inevitably "prime the pump" of greater production, but the Keynesians didn't take into account resource limitations that limit how fast the economy can grow independent of the money supply -- specifically, oil).

So inflation caused by printing money to cover the deficit would not cause loss of jobs. What about these mythical "bond vigilantes" who would drive up interest rates on Federal bonds (and by extension, on all other loans) to the point where the U.S. was bankrupted by interest payments? Well, if they showed up at Treasury auctions, the Fed can step in and buy those bonds. They're denominated in dollars, after all, and the Fed has a very efficient money printing operation set up in its cellars. So the "bond vigilantes" would be shooting themselves in the foot if they showed up, since the Fed could simply inflate their bonds away if the "bond vigilantes" showed up, thereby not only killing their attempt to drive up interest rates but also making their already-owned bonds worth less. So rising interest rates caused by these mythical "bond vigilantes" aren't going to cause the massive loss of jobs predicted by former Sen. Erskine Bowles (R-Crazyville).

So what mechanism, exactly, would cause this loss of jobs? Mr. Bowles doesn't tell us, just that it will happen because, well, because the voices in his head told him so, I guess. Nevermind that the only Depression within the past 100 years (besides the current one) was ended by government spending on a massive scale and accompanied by massive deficits -- that is, World War II, which had average deficits of 25% of U.S. GDP during the course of the war -- that actual, well, history apparently does not exist in the universe where Mr. Bowles lives, where, apparently, WW2 never happened and the Great Depression was ended by magic fairy unicorn dust and Austerians clicking the heels of their ruby slippers together while chanting "Mises is good, Mises is great, Mises is our Savior".

So what will be the effect of Mr. Bowles' recipe of austerity and massive federal budget cuts? Well, what do you think -- it'd be further economic collapse as demand falls even further and more businesses and homeowners default on their loans and more banks collapse and wash rinse repeat. Indeed, in the end I think even cat food will end up being too expensive for the majority of Americans to afford, rendering the moniker "Cat Food Commission" rather ironic. So in that spirit, I will now render one of the recipes for what America will be eating if the Cat Food Commission gets their way...

Simmer about 2 or 3 hours. The secret to making a good roux, is to cook and stir until brown as you can get it without burning it. When you add the vegetables, you can brown it even more.

And that's a Cajun gumbo recipe for the Greater Depression that will happen if the Cat Food Commission succeeds in making even cat food too expensive for people to eat. Rat. It's the other dark meat. Enjoy :).

Well... yes. But that's in this reality, where there's a lack of demand causing a lot of folks to be out of work, not in their reality, where unicorns are real, cotton candy grows on trees, and tax money apparently just disappears into a black hole rather than, err, being spent and re-entering the economy again, thereby putting money in people's pockets, thereby creating demand, thereby creating jobs ... oops, here I go with that reality stuff again! My bad!

If the Cat Food Commission really was about cutting deficits, they wouldn't be supporting tax cuts for corporations and the rich. This commission is about transfer of income and wealth from the middle class and the poor to the rich.

I detest euphemisms like "bond vigilantes" and "the market." What those terms mean is "speculators." There is no such thing as "the market," only a mass of maggots who are scheming on how to screw things up so they can grab more money. And they don't give a rat's ass if they destroy lives or entire countries when they do it.

Why is it that the messed meeja considers a word like "speculators" too much of a value judgment to use, but they'll gladly employ cover-up phrases? Fucking bunch of lily-livered pussies, or pussy-livered lilies...

The reality is, if the vigilantes or speculators thought any of the things that Simpson Bowles are saying, Bond prices would collapse, which is another way of saying that interest rats would go up. Aint happening.

On quibble on the inflation : employment trade off. If you look at the SGS alternate, which seems to be a more honest measure, over the last 16 years there's a pretty fair inverse correlation between inflation and unemployment.

http://www.shadowstats.com/alternate_data

Note also, that by their reckoning, GDP growth has been stagnant to anemic since the beginning of Reagan's first term, and in the sewer for a decade.

Ground rules: Comments that consist solely of insults, fact-free talking points, are off-topic, or simply spam the same argument over and over will be deleted. The penguin is the only one allowed to be an ass here. All viewpoints, however, are welcomed, even if I disagree vehemently with you.

WARNING: You are entitled to create your own arguments, but you are NOT entitled to create your own facts. If you spew scientific denialism, or insist that the sky is purple, or otherwise insist that your made-up universe of pink unicorns and cotton candy trees is "real", well -- expect the banhammer.

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